debt-to-total-assets ratio

Firm LM’s debt-to-total-assets ratio (D/TA) is 25 percent, whereas Firm QR’s D/TA ratio is 50 percent. LM has $800,000 in assets, $60,000 EBIT, and 15,000 shares of stock outstanding, and it pays 8 percent interest. QR has $400,000 in assets, $70,000 EBIT, and 25,000 shares of stock outstanding, and it pays 10 percent interest. The marginal tax rate for both firms is 40 percent. Calculate each firm’s EPS and ROE (ROE = Net income/Equity). Discuss your results.